The Dynamic Forces Shaping Industry’s Structure and Competitiveness

Carlos, Grace Cuarto, Lea Anna Garcia, Elizabeth Palma, Ivy Marie Pena, Domingo Sobremisana, Maria Theresa
07 November 2012 ASOG, Katipunan, Quezon City

Guidelines/Mechanics
Groups are composed of 2 members: the one who will guess the word/phrase and the other is the one who will respond to the guesser. The group’s name will be called and must go in front. They will be given strictly 2 minutes only to guess the word/ phrase. The timer will start automatically as soon as the word/phrase is seen. The one who will respond must only say PWEDE.

NO, YES or

When the group finally guesses the word, the timer will be stopped and the recorder will note the group’s time.

Guide Questions

• What is an industry? • Porter’s five-forces model of analyzing industry structure • What is the industry supply chain, and what is its importance
in the industry’s competitiveness and growth?

• How should an industry supply chain be managed?

What is an Industry?

- a market in which similar or closely related products and/or services are sold to buyers. The production side of business activity is referred as industry. It is a business activity, which is related to the raising, producing, processing or manufacturing of products. others. An industry is often named after its principal product, a very precise or generic business activity, or a uniform classification code. within an economy.

• Any general business activity that can be isolated from

• Industry is the production of an economic good or service
Sources: http://www.businessdictionary.com/definition/industry.html; http://www.investorwords.com/2247/industry.html )

Classification/Types of Industry
1. Primary Industry
Primary industry is concerned with production of goods with the help of nature. It is a nature-oriented industry, which requires very little human effort. E.g. Agriculture, farming, forestry, fishing, horticulture, etc.

2. Genetic Industry
Genetic industries are engaged in re-production and multiplication of certain spices of plants and animals with the object of sale. The main aim is to earn profit from such sale. E.g. plant nurseries, cattle rearing, poultry, cattle breeding, etc.

3. Extractive Industry
Extractive industry is concerned with extraction or drawing out goods from the soil, air or water. Generally products of extractive industries come in raw form and they are used by manufacturing and construction industries for producing finished products. E.g. mining industry, coal mineral, oil industry, iron ore, extraction of timber and rubber from forests, etc.

Classification/Types of Industry
4. Manufacturing Industry
Manufacturing industries are engaged in transforming raw material into finished product with the help of machines and manpower. The finished goods can be either consumer goods or producer goods. E.g. textiles, chemicals, sugar industry, paper industry, etc.

5. Construction Industry
Construction industries take up the work of construction of buildings, bridges, roads, dams, canals, etc. This industry is different from all other types of industry because in case of other industries goods can be produced at one place and sold at another place. But goods produced and sold by constructive industry are erected at one place.

6. Service Industry
In modern times service sector plays an important role in the development of the nation and therefore it is named as service industry. The main industries, which fall under this category, include hotel industry, tourism industry, entertainment industry, etc.

source: http://kalyan-city.blogspot.com/2011/03/what-is-industry-meaning-classification.html

Type of Industry and Firm Size*

*www.dti.gov.ph

Top 5 Industry Groups*

*www.dti.gov.ph

The Video that Defies All –Known Sciences with 6 Million Hits and Likes

Analysing Industry Structure: Porter's Five Forces Model
Five factors that act together to determine the nature of competition within an industry:

• • • • •

Threat of new entrants to a market Bargaining power of suppliers Bargaining power of customers (“buyers”) Threat of substitute products Degree of competitive rivalry

5 Forces Model: An Analysis

source:http://www.quickmba.com/strategy/porter.shtml

Issues to Consider in Entering an Industry

Easy to Enter
Common technology

Difficult to Enter
Patented or proprietary knowhow

Access to distribution channels Well-established brands Low capital requirements Restricted distribution channels

No need to have high capacity High capital requirements and output Absence of strong brands and customer loyalty Need to achieve economies of scale for acceptable unit costs

Factors that Determine Supplier Power
Factor
Uniqueness of the input supplied

Note
If the resource is essential to the buying firm and no close substitutes are available, suppliers are in a powerful position. A few large suppliers can exert more power over market prices that many smaller suppliers each with a small market share. If there is great competition, the supplier will be in a stronger position. A business may be “locked in” to using inputs from particular suppliers – e.g. if certain components or raw materials are designed into their production processes. To change the supplier may mean changing a significant part of production.

Number and size of firms supplying the resources Competition for the input from other industries Cost of switching to alternative sources

Factors that Determine Customer Power
Factor
Number of customers Their size of their orders

Note
The smaller the number of customers, the greater their power. The larger the volume, the greater the bargaining power of customers.

Number of firms supplying the product

The smaller the number of alternative suppliers is the less opportunity customers have for shopping around.
If customers pose a threat of integrating backwards they will enjoy increased power.

The threat of integrating backwards

The cost of switching

Customers that are tied into using a supplier’s products (e.g. key components) are less likely to switch because there would be costs involved.

5 Forces Model:

An Analysis

- used to analyze where power lies in a business situation so that one

can take fair advantage of its strength, improve weakness, and avoid taking wrong steps
Supplier power - power of suppliers to drive up the prices of inputs. Buyer power - power of customers to drive down prices.

Competitive Rivalry- strength of competition in the industry
Threat of substitution - extent to which different products and services can be used in place of another. Threat of new entry - ease with which new competitors can enter the market Example: Fast Food Industry

Source: http://www.valuebasedmanagement.net/methods_porter_five_forces.html

Industry Supply Chain
Industry Supply Chain - the transportation and logistics service industry consists of a range of businesses involved in the manufacturing, warehousing, selling, transportation, and distribution of goods. This industry is vast, encompassing companies involved in the entire supply chain process, from the purchasing of raw materials to the use of decision making software to optimize revenue and profit.

A supply chain is a network of retailers, distributors, transporters, storage facilities, and suppliers that participate in the production, delivery, and sale of a product to the consumer. It is typically made up of multiple companies who coordinate activities to set themselves apart from the competition.

Supply Chain
Element Focus Inputs Manufacturing Industry Physical product Labor Broad supplier base Huge cost in procuring, transporting, and manipulating physical materials Focused logistics Ex. Better shipping rates, maximize containers Service Industry Information/ Relationship Labor Smaller supplier base Huge cost in manipulating information and developing relationships

Logistics

Finished Goods

Optimization

Irrelevant Ex. Upgrade of servers, install software to speed the flow of information Physical product assembled, Closed account/file with a tested, and packaged, ready to satisfied customer satisfy customer Improve speed of delivery Improve relationships and and reduce cost information flow

Supply Chain
Horizontal Supply Chain Integration- expansion of business at the same stage of production within the supply chain, either within the same industry or a different one. It can be achieved through internal expansion (increase variety of products) or external expansion (merger, acquisition)

Vertical Supply Chain Integration - expansion of business at different stages of production or distribution within the same industry. It can either be forward integration (acquisition of distributor) and backward integration (acquisition of supplier)

(Source: www.smallbusiness.chron.com/definition-horizontal-integration-supply-chain-34736.html)

Process Innovation in Supply Chain for Competitive Advantage

Benefits -enhancement of the speed of operations and customer responsiveness -reduction in the cost position of firms relative to competitors -incorporation of product features -increase in the flexibility of workplace

Value Chain

A Value Chain is a chain of activities that a firm operating in a specific industry performs in order to deliver something valuable (product or service). (1) Primary Activities - those that are directly concerned with creating and delivering a product; and, (2) Secondary/Support Activities - those that are not directly involved in production, but may increase effectiveness or efficiency

Value Chain Activities

Value Chain
Each activity that a business undertakes is directly linked to achieving competitive advantage. Analyzing the value chain can help recognize the competitive strength of the business. It is way of assessing the potential for adding value via cost advantage or differentiation. It is also a way of determining strategies and identifying which activities are best undertaken by a business and which are best provided by others (“outsourced”).

The AMGEN experience
AMGEN focused on pushing for constant change and innovation in the supply chain. The company aims for a lean and real-time supply chain that will allow more efficient operations.

•Surveillance Mechanism – track data •Network Strategy – cross-functional/global •Inventory Management – ERP •Brand Protection – Anti-tampering/counterfeit

The JOLLIBEE experience

Jollibee Food Corporation
(bagged the Supply Chain Excellence Award in Asia-Pacific in 2009)

• FSC - Food-Service-Cleanliness • Procurement -Long -term deals with partners • Manufacturing - Commissary system; technology dependent • Marketing - CSR activities; family values

Supply Chain Management
• Supply
chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

(source:http://www.jobs4logistics.com/content/supply-chain-explained-75.htm)

Supply Chain Management
The 1. 2. 3. 4. 5.

main objectives of supply chain management include:
Satisfying the end-customers; Devising/implementing strategies to capture and retain end-customer business; Managing the chain effectively and efficiently; Determines the scope and span of operations; vertical integration; make or buy decisions; and Long term relationships with suppliers and customers

Supply Chain Management
Three Levels of Activities: Strategic: This level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

Supply Chain Management
Elements of Supply Chain: Customer Planning Purchasing Inventory Production Transportation

Supply Chain Management
Supply Chain Management Technology
The wide adoption of Internet technologies (IT), all businesses can take advantage of Web-based software and Internet communications. Instant communication between vendors and customers allows for timely updates of information, which is key in management of the supply chain. Two main types of SCM software: 1. planning applications - use advanced algorithms to determine the best way to fill an order. 2. execution applications - track the physical status of goods, the management of materials, and financial information involving all parties.

Supply Chain Management
Supply Chain Management Technology
Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer eprocurement marketplaces where manufacturers can trade and even make auction bids with suppliers.

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